RECN

Resources Connection, Inc. (RECN)

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Resources Connection (RECN)

Q3 2013 Earnings Call

April 02, 2013 5:00 pm ET

Executives

Kate W. Duchene - Chief Legal Officer and Executive Vice President of Human Resources

Anthony Cherbak - President, Chief Operating Officer and Director

Nathan W. Franke - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Donald B. Murray - Co-Founder, Executive Chairman and Chief Executive officer

Analysts

Derek Sbrogna - Macquarie Research

Paul Ginocchio - Deutsche Bank AG, Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Molly R. McGarrett - JP Morgan Chase & Co, Research Division

Mark S. Marcon - Robert W. Baird & Co. Incorporated, Research Division

Anjaneya Singh

Presentation

Operator

Good day, ladies and gentlemen, and welcome to Resources Global Professionals' Third Quarter Fiscal 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Kate Duchene, Chief Legal Officer. Ma'am, you may begin.

Kate W. Duchene

Thank you, operator. Good afternoon, everyone, and thank you for participating today. Joining me on this call are Don Murray, our Chairman and Chief Executive Officer; Tony Cherbak, President and Chief Operating Officer; and Nate Franke, our Chief Financial Officer.

During this call, we will be providing you with comments on our results for the third quarter of fiscal year 2013. By now, you should have a copy of today's press release. If you need a copy and are unable to access via our website, please call Patricia Marquez at (714) 430-6314, and she'll be happy to fax a copy to you.

Before introducing Tony, I'd like to read an important announcement about certain statements that we may make during this call. Specifically, we may make forward-looking statements. In other words, statements regarding future events or future financial performance of the company. We wish to caution you that such statements are just predictions, and actual events or results may differ materially. We refer you to our 10-K report for the year ended May 26, 2012, for a discussion of some of the risks, uncertainties and other factors, such as seasonal and economic conditions that may cause our business, results of operations and financial condition to differ materially from results of operations and financial conditions expressed or implied by forward-looking statements made during this call.

I'll now turn the call over to Tony Cherbak, our President and Chief Operating Officer.

Anthony Cherbak

Thanks, Kate, and Good afternoon, and welcome to the Resources Global Third Quarter Conference Call. I'm going to begin by giving you a brief overview of our third quarter operating results.

Total revenue for the third quarter of fiscal 2013 was $138 million, a 3.7% decrease over the comparable quarter a year ago and a sequential decrease of 2.3% from our second quarter revenue of $141.2 million. Exchange rates did not have any meaningful impact on the consolidated results for the quarter. The wind-down of a large foreclosure review project resulting from our client settlement with the U.S. government, combined with lower international revenue in the latter portion of the quarter, adversely impacted our third quarter revenues.

Third quarter gross margin was 37.1%, a decrease of 30 basis points from the comparable quarter a year ago.

During the third quarter, our SG&A costs were $41.6 million, a quarter-over-quarter decrease of $1.8 million and a sequential decrease of $700,000. As Nate will expand on later, our third quarter SG&A was lower than anticipated, primarily resulting from a legal settlement and lower incentive compensation.

During the third quarter, we generated cash flow from operations and adjusted EBITDA of $13 million and $11.4 million, respectively. Additionally, we returned $8.5 million to shareholders during the third quarter, in the form of share repurchases and dividends.

Our pretax income on a U.S. GAAP basis was $8.1 million. Based upon an effective tax rate of 44.5% during the third quarter, our net income per share was $0.11 versus $0.10 per share in the third quarter of fiscal 2012.

Let's talk about revenue trends for a moment. As we reported in early January, weekly revenues during the first 3 weeks of the third quarter averaged $11.8 million. As expected, we lost about 1 week of revenue during the Christmas and New Year holiday weeks. We bounced back quickly from the holidays, with non-holiday weekly revenues averaging $11.9 million through the first week of February. During the winding down of the mortgage servicing review project in early February that I referred to earlier, combined with the decline in international revenues, caused our weekly revenues to fall to an average of $11 million during the last 3 weeks of the quarter.

On the international front, our Asia-Pacific quarter-over-quarter revenue decreased 16.3%. While the stability of our revenue within our Chinese practices improved, Japan was negatively impacted by the completion of certain projects we were working on for 3 key clients in Tokyo and Nagoya. In Europe, quarter-over-quarter revenues decreased 16.1%. While our business in Europe appeared to be improving in the early weeks of the third quarter, our European weekly revenues following the holidays did not bounce back to preholiday levels.

Now a brief comment about how Q4 is progressing. During the first 4 weeks of our fourth quarter, weekly revenues have averaged $11.2 million, a slight improvement from the $11 million during the last 2 weeks of the third quarter. Weekly revenues in the latter part of March have been impacted, to some degree, by spring break throughout several regions.

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